KANEB LLC

                          2002 LONG TERM INCENTIVE PLAN




                             Effective July 18, 2002










<PAGE>
                                    KANEB LLC
                          2002 LONG TERM INCENTIVE PLAN

     WHEREAS,  at the  request  of Kaneb  Pipe Line  Company  LLC,  Kaneb LLC, a
Delaware limited liability company, desires to establish the Kaneb LLC 2002 Long
Term Incentive Plan (the "Plan") for John R. Barnes so as to offer him a further
incentive  to increase the value of Kaneb Pipe Line  Partners,  L.P., a Delaware
limited partnership.

     WHEREAS,  it is intended  that the Plan shall  constitute  a bonus  program
within the meaning of Department of Labor Regulation section 2510.3-2(c) that is
exempt from coverage under the Employee  Retirement Income Security Act of 1974,
as amended;

     NOW, THEREFORE, Kaneb LLC adopts the Plan as follows.


<PAGE>
                                    KANEB LLC
                          2002 LONG TERM INCENTIVE PLAN


                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                         Section
<S>                                                                                                         <C>
ARTICLE I - PLAN PURPOSE AND TERM
         Purpose.............................................................................................1.1
         Term of Plan........................................................................................1.2

ARTICLE II - DEFINITIONS
         Adjusted Average Ending Yield.......................................................................2.1
         Adjusted Ending Market Capitalization...............................................................2.2
         Adjusted Ending Price...............................................................................2.3
         Average Ending Yield................................................................................2.4
         Affiliate...........................................................................................2.5
         Board...............................................................................................2.6
         Change of Control...................................................................................2.7
         Change in Treasury Yield............................................................................2.8
         Code................................................................................................2.9
         Distribution........................................................................................2.10
         Employer............................................................................................2.11
         Ending Market Capitalization Value..................................................................2.12
         Ending Treasury Yield..........................................................................2.13
         Maturity Date.......................................................................................2.14
         Measurement Period..................................................................................2.15
         Participant.........................................................................................2.16
         Partnership.........................................................................................2.17
         Payment Amount................................................................................  2.18
         Plan................................................................................................2.19
         Spouse..............................................................................................2.20
         Unit................................................................................................2.21

ARTICLE III - PARTICIPATION

ARTICLE IV - CALCULATION AND PAYMENT OF BENEFITS
         Amount of Benefit...................................................................................4.1
         Time of Payment.....................................................................................4.2
         Form of Payment.....................................................................................4.3
         No Interest.........................................................................................4.4
         Payment on Death ...................................................................................4.5
         Adjustments Due to Changes in the Partnership's Capital Structure...................................4.6

ARTICLE V - ADMINISTRATION
         Powers of the Board.................................................................................5.1

ARTICLE VI - TERMINATION OF PLAN

ARTICLE VII - FUNDING
         Payments Under the Plan Are the Obligation of the Employer..........................................7.1
         Unfunded Arrangement................................................................................7.2

ARTICLE VIII - MISCELLANEOUS
         No Employment Obligation............................................................................8.1
         Tax Withholding.....................................................................................8.2
         Gender and Number...................................................................................8.3
         Headings............................................................................................8.4
         Other Compensation Plans............................................................................8.5
         Rights of Employer and Affiliates...................................................................8.6
         Nonalienation of Benefits...........................................................................8.7
         No Rights as Unit Owner.............................................................................8.8
         Governing Law.......................................................................................8.9
</TABLE>
<PAGE>

                                   ARTICLE I

                              PLAN PURPOSE AND TERM

     1.1  Purpose.  The Plan is  intended  to provide  John R.  Barnes,  who has
substantial  responsibility  for the  management  and  growth of Kaneb Pipe Line
Partners,  L.P., with  additional  incentive to increase the value of Kaneb Pipe
Line Partners, L.P.

     1.2 Term of Plan.  The Plan is effective  July 18,  2002,  and shall expire
when all obligations under the Plan have been satisfied.


                                   ARTICLE II

                                   DEFINITIONS

     The words and phrases  defined in this  Article  shall have the meaning set
out in these  definitions  throughout the Plan,  unless the context in which any
such  word or  phrase  appears  reasonably  requires  a  broader,  narrower,  or
different meaning.

     2.1 "Adjusted Average Ending Yield" is the Average Ending Yield adjusted by
the Change in  Treasury  Yield.  If the Change in  Treasury  Yield is a positive
amount,  the Average  Ending  Yield shall be reduced by that amount to determine
the Adjusted Average Ending Yield. If the Change in Treasury Yield is a negative
amount,  the Average Ending Yield shall be increased by that amount to determine
the Adjusted Average Ending Yield.

     2.2  "Adjusted   Ending  Market   Capitalization"   is  the  Ending  Market
Capitalization  Value reduced by all proceeds  received by the Partnership  from
the sale of Units (the offering price  multiplied by the number of units issued)
during the Measurement Period and increased by the cost of any Units acquired by
the Partnership during the Measurement Period.

     2.3  "Adjusted  Ending  Price" is the amount  resulting  from  dividing the
Distribution by the Adjusted Average Ending Yield.

     2.4 "Average  Ending Yield" is the  arithmetic  mean of the yield of a Unit
for each trading day during the last six months of the Measurement  Period.  The
yield of a Unit for a given trading day will be calculated  by  annualizing  the
quarterly  distribution to be paid by Partnership as most recently  announced by
the  Partnership as of the close of trading on that day and dividing that amount
by the  closing  price of a Unit on the New York Stock  Exchange  (or such other
exchange which is the exchange on which Units of the  Partnership are listed and
regularly traded) for that trading day.

     2.5  "Affiliate"  means an  entity  that is  treated  as a single  employer
together with the Employer for certain  employee  benefit purposes under section
414 of the Code.

     2.6 "Board"  means the Board of  Directors  of Kaneb Pipe Line  Company LLC
("KPL"), a Delaware limited liability company.

     2.7 "Change of Control" means if while a benefit remains  outstanding under
the Plan (1) Kaneb Services LLC, a Delaware  limited  liability  company ("KSL")
shall  not  be the  surviving  entity  in any  merger,  consolidation  or  other
reorganization  (or survives only as an entity that is wholly-owned by an entity
other than an entity  that was  wholly-owned  by KSL  immediately  prior to such
merger,  consolidation  or  other  reorganization),  (2) KSL  sells,  leases  or
exchanges or agrees to sell, lease or exchange all or  substantially  all of its
assets to any other person or entity (other than an entity wholly-owned by KSL),
(3)  KSL is to be  dissolved,  (4)  KSL or one of its  wholly  owned  direct  or
indirect  subsidiaries  is no longer  the  general  partner  of Kaneb  Pipe Line
Partners,  L.P. or (5) KSL is a party to any other similar  transaction  that is
not described in clauses (1), (2), (3) or (4) of this sentence  (each such event
is referred  to herein as a "Change of  Control").  A "Change of Control"  shall
also be deemed  to have  occurred  if the  following  individuals  cease for any
reason  to  constitute  a  majority  of  the  directors  of  KSL  then  serving:
individuals who, on July 18, 2002,  constitute the Board of Directors of KSL and
any new  director  of KSL (other than a director  whose  initial  assumption  of
office is in connection with an actual or threatened  election  contest relating
to the election of directors of KSL) whose  appointment or election by the Board
of  Directors  of KSL or  nomination  for  election  by KSL's  shareholders  was
approved or recommended by a vote of at least 2/3 of the directors then still in
office who either were directors on July 18, 2002 or whose appointment, election
or nomination for election was previously so approved or recommended.

     2.8 "Change in  Treasury  Yield"  means  Ending  Treasury  Yield minus 4.85
percent.

     2.9 "Code" means the Internal Revenue Code of 1986, as amended.

     2.10  "Distribution" is the arithmetic mean of the annualized amount of the
quarterly  distribution to be paid by the Partnership as most recently announced
by the Partnership as of the close of trading on each trading day during the six
months ending on the last day of the Measurement Period.

     2.11 "Employer" means Kaneb LLC, a Delaware limited liability  company,  or
any successor thereof.

     2.12 "Ending Market  Capitalization  Value" means the Adjusted Ending Price
multiplied by the number of Units  outstanding  at the close of the last trading
day of the Measurement Period.

     2.13  "Ending  Treasury  Yield" means the  arithmetic  mean of the yield on
ten-year U.S. Treasury notes at the close of trading each trading day on the New
York Stock Exchange during the last six months of the Measurement Period.

     2.14 "Maturity  Date" means the earliest to occur of (1) December 31, 2006,
(2) the death of John R. Barnes, (3) a Change of Control, or (4) the date of the
Board's request to Kaneb LLC to contemporaneously  terminate the Plan and notify
the Participant of such termination

     2.15  "Measurement  Period" means the period beginning on July 1, 2001, and
ending six months after the Maturity Date, unless the Maturity Date shall be (1)
the date of death of John R. Barnes, (2) the date of a Change of Control, or (3)
the date of the Board's request that Kaneb LLC  contemporaneously  terminate the
Plan and notify the Participant of the Board's decision to terminate the Plan on
that date, in which cases the Measurement Period shall end on the Maturity Date.

     2.16 "Participant" means John R. Barnes or the person or entity to whom his
Plan benefits have been transferred pursuant section 8.7.

     2.17 "Partnership" means Kaneb Pipe Line Partners, L.P., a Delaware limited
partnership.

     2.18 "Payment Amount" means an amount equal to two percent of the result of
the Adjusted Ending Market Capitalization Value minus $805,723,775.

     2.19 "Plan" means the Kaneb LLC 2002 Long Term Incentive Plan, as set forth
in this document and as it may be amended from time to time.

     2.20 "Spouse" means the person,  if any, to whom the Participant is married
under local law.

     2.21 "Unit" means a limited partnership unit in the Partnership.


                                  ARTICLE III

                                 PARTICIPATION

     Mr. Barnes became a Participant  when he was selected for  participation in
the Plan.  This document  shall serve to notify Mr. Barnes,  in writing,  of his
selection for participation in the Plan and his acceptance of its terms.


                                   ARTICLE IV

                       CALCULATION AND PAYMENT OF BENEFIT

     4.1 Amount of Benefit.  The Employer shall pay the  Participant the Payment
Amount, unless the Maturity Date is the day on which a Change of Control occurs.
If the  Maturity  Date is the date on  which a Change  of  Control  occurs,  the
Employer shall pay the  Participant  the greater of (a) or (b), where (a) is the
Payment  Amount,  and (b) is the Payment  Amount  calculated  with the following
changes to the definitions in Article II:

          (i) "Average  Ending  Yield" shall mean the closing yield of a Unit on
     the Maturity Date, calculated by annualizing the quarterly  distribution to
     be paid by the Partnership as most recently announced prior to the Maturity
     Date and  dividing  that amount by the  closing  price of a Unit on the New
     York Stock  Exchange (or such other  exchange on which Units are listed and
     regularly  traded) on the  Maturity  Date.  If the  Maturity  Date is not a
     trading day, then for purposes of calculating the Average Ending Yield, the
     Maturity  Date  shall be  deemed  to be the last  trading  day prior to the
     Maturity Date.

          (ii)  "Distribution"  means the  annualized  amount  of the  quarterly
     distribution to be paid by the Partnership as most recently announced prior
     to the Maturity Date.

          (iii)  "Ending  Treasury  Yield"  means  the  yield on  ten-year  U.S.
     Treasury  notes  at the  close of the day  that is or is  deemed  to be the
     Maturity Date for purposes of determining the Average Ending Yield.

     4.2 Time of Payment.  The  Employer  shall pay the  Participant  as soon as
practicable  (and  in no  event  later  than  10  days)  after  the  end  of the
Measurement Period.

     4.3 Form of Payment.  All payments of Plan benefits shall be in the form of
cash.

     4.4 No Interest.  No interest shall be credited with respect to any benefit
or any payment under the Plan.

     4.5  Payment  on Death.  If the  Participant  has not been paid the  entire
benefits  due under the Plan  previously,  upon the death of John R.  Barnes the
Participant  shall be paid the entire benefits due unless the Participant  shall
be John R. Barnes,  in which case the  benefits  under the Plan shall be paid to
the  Participant's  Spouse if the Spouse  survives  the  Participant,  or to the
Participant's   estate  if  the  Participant's   Spouse  does  not  survive  the
Participant.  Any  payment  under  this  Section  4.5  shall be made at the time
specified in Section 4.2.

     4.6 Adjustments Due to Changes in the Partnership. If the Partnership shall
(i)  effect  a  subdivision   or   consolidation   of  Units  or  other  capital
readjustment, or other increase or reduction of the number of Units outstanding,
without receiving  compensation for it in money,  services or property,  or (ii)
effect a distribution of cash or property other than a distribution of Available
Cash constituting Cash from Operations (as such terms are defined in the Amended
and Restated  Agreement of Limited  Partnership  of the  Partnership),  then the
amount  payable under the Plan shall be  appropriately  adjusted by the Board in
such a manner as to entitle a Participant to receive the equivalent  payment the
Participant   would  have  received  had  there  been  no  event  requiring  the
adjustment.


                                    ARTICLE V

                                 ADMINISTRATION

     5.1 Powers of the Board. Kaneb LLC shall have exclusive  responsibility for
the general  administration of the Plan according to the terms and provisions of
the Plan.  Kaneb LLC appoints and  delegates to the Board the  exclusive  right,
power and authority to:

          (a) with the consent of the  Participant,  correct any defect,  supply
     any omission or reconcile any inconsistency  that may appear in the Plan in
     the  manner  and to the  extent it deems  expedient  to carry the Plan into
     effect for the greatest benefit of all parties at interest; and

          (b) to terminate the Plan.


                                   ARTICLE VI

                               TERMINATION OF PLAN

     The Board may  terminate  the Plan at any  time,  in its sole and  absolute
discretion,  by  giving  notice  to Kaneb  LLC of its  request  that the Plan be
terminated and delivering  confirmation to Kaneb LLC that the  termination  will
not result in the termination of any  reimbursements  from the Partnership under
section 6.4 of the Amended and  Restated  Agreement  of Limited  Partnership  of
Kaneb Pipe Line Partners,  L.P. dated July 23, 1998. Upon receipt of such notice
and confirmation,  Kaneb LLC shall immediately give notice to the Participant of
the Plan termination. No termination of the Plan may, without the consent of the
Participant,  reduce the Participant's right to a payment under the Plan that he
is  entitled  to  receive  under the  terms of the Plan in  effect  prior to the
termination.


                                  ARTICLE VII

                                     FUNDING


     7.1 Payments  Under the Plan Are the  Obligation of the Employer.  Benefits
due under the Plan will be paid by the Employer.  Any person to whom amounts are
payable  under the Plan shall have  rights as a third  party  beneficiary  under
section 6.4 of the Amended and  Restated  Agreement  of Limited  Partnership  of
Kaneb Pipe Line Partners, L.P. dated July 23, 1998, and under agreements between
KPL and Kaneb LLC effective July 18, 2002.


     7.2 Unfunded  Arrangement.  It is intended  that the Plan shall be unfunded
for tax purposes and for  purposes of Title of the  Employee  Retirement  Income
Security Act of 1974, as amended.


                                  ARTICLE VIII

                                  MISCELLANEOUS

     8.1  No  Employment  Obligation.   Participation  in  the  Plan  shall  not
constitute  an  employment  contract,  express or  implied,  nor impose upon the
Employer or any  Affiliate  any  obligation  to employ or continue to employ the
Participant.  The  right of the  Employer  or any  Affiliate  to  terminate  the
employment  of any person shall not be  diminished  or affected by reason of the
fact that the person has been selected for participation in the Plan.

     8.2 Tax  Withholding.  The  Employer  shall be  entitled to deduct from the
benefit or other amount payable to the Participant any sums required by federal,
state, or local tax law to be withheld with respect to payments under the Plan.

     8.3 Gender and Number.  If the context  requires,  words of one gender when
used in the Plan  shall  include  the other and words  used in the  singular  or
plural shall include the other.

     8.4   Headings.   Headings  of  Articles  and  Sections  are  included  for
convenience of reference  only and do not constitute  part of the Plan and shall
not be used in construing the terms of the Plan.

     8.5 Other  Compensation  Plans.  The adoption and  maintenance  of the Plan
shall  not  affect  any other  compensation  or  benefit  plans in effect of the
Employer or any Affiliate or preclude the Employer from  establishing  any other
forms of incentive or other  compensation  for  employees of the Employer or any
Affiliate.

     8.6 Rights of Employer and Affiliates.  The existence of the Plan shall not
affect in any way the right or power of the Employer or an Affiliate to (a) make
or authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the Employer's or an Affiliate's  structure or business,  (b) approve
and consummate any merger or  consolidation of the Employer or an Affiliate with
or into any entity, (c) issue any bonds,  debentures or interests of Employer or
Affiliate(s) of any nature whatsoever to any person,  (d) approve and consummate
the  dissolution  or  liquidation of the Employer or an Affiliate or any sale or
transfer  of all or any  part of the  Employer's  or an  Affiliate's  assets  or
business or (e) approve and consummate any other act or proceeding  whether of a
similar  character or  otherwise;  provided  however,  that no such action shall
affect the  obligation  of the Employer or its  successors  to make  payments to
Participants when due under this Plan.

     8.7 Nonalienation of Benefits.  No benefit provided under the Plan shall be
transferable by the  Participant  except to an entity created for the benefit of
Mr. Barnes' family or members of Mr. Barnes' family, or as otherwise  authorized
by the  Board.  No  right  or  benefit  under  the  Plan  shall  be  subject  to
anticipation, alienation, sale, assignment, pledge, encumbrance or charge except
as  specified  above.  Except as  specified  above,  any attempt to  anticipate,
alienate,  sell, assign,  pledge,  encumber or charge any right or benefit under
the Plan shall be void unless authorized by the Board. No right or benefit under
the Plan shall, in any manner, be liable for or subject to any debts, contracts,
liabilities or torts of the person or entity entitled to the right or benefit.

     8.8 No Rights as Unit Owner. No Participant shall have any rights as a Unit
owner as a result of his participation in the Plan.

     8.9  Governing  Law.  The  validity,   interpretation,   construction   and
enforceability of the Plan shall be governed by the laws of the State of Texas.

     IN WITNESS  WHEREOF,  Kaneb LLC has caused this Agreement to be executed by
its authorized officer, effective as of July 18, 2002.



ACCEPTED BY THE PARTICIPANT             KANEB LLC

        //s//
------------------------------          By:
John R. Barnes                             -------------------------------------
                                        Title:
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